There are many opportunities for Indian businesses with solid revenues and clients to use the current market environment to aggressively hunt for acquisition opportunities

"It was a question of mindset, not calibre," says Murthy. A few months later, he moved his software team back to India. A lower cost base meant higher margins. Under his stewardship, Infosys become India's fist IT services firm to list on the Nasdaq exchange in March 1999.

In the past few years, outsourcing software development has become more the rule than the exception in the UK. And almost 100 India companies have set up shop to take advantage of that new thinking.

Outsourcing IT became popular as UK companies struggled to fix the millennium bug. Computer programmers based in India provided a cheap and easy solution to the problem. They were also familiar with older languages such as COBOL and FORTRAN, a skill set that was scarce in the UK. Once entrenched, Indian firms continued to win business, even after the threat of the year 2000 date change passed by. They also perfected a hybrid model of using both an "on-site" team of programmers and project managers that work with a larger, cheaper team of "offshore" developers that carry out the bulk of the work.

"E-commerce, legacy systems integration and application development replaced what had been a sweatshop activity of Indian software houses," said Srini Raju, former executive director of Satyam Computer Services, one of the top three Indian IT firms (also floated on Nasdaq). So those Indian software firms have got hungry. And in recent years, they have been aggressively expanding into the UK, seen as a foothold into a larger European market. And some smaller Indian companies such as Melstar, Datamatics and Mastek have begun make acquisitions to fast-track that process.

"There are many opportunities for Indian businesses with solid revenues and clients to use the current market environment to aggressively hunt for acquisition opportunities," says Jay Patel, a director at New Media Spark, the UK venture capitalist that invested in Indian software firm IMI Software for that purpose. "It's a great use of cash, as there are lots of companies in a mess in Europe." "The empire strikes back" phenomenon is also breeding a new type of UK business. More and more UK entrepreneurs are setting up outsourcing businesses with an Indian twist. Last year, Texuna Technologies and Solitar Systems were set up as UK businesses with software development facilities in India.

[customers] feel like they’re dealing with a local company that has cheaper operating costs that they can share

Raj Negi quit his job as a banker as HSBC to set up Solitar Systems with his colleague Henry Brun. "When customers deal with us, they feel like they're dealing with a local company that has cheaper operating costs that they can share. Indian companies still have to get past the feel of being a foreign company - often done by expensive acquisitions."

He, too, feels the need to grab market share quickly. In September, Solitar bought Bone-Apart Medial Systems (known as BAMS) for an undisclosed sum to expand into the healthcare sector.

Murthy's law
For Narayana Murthy, the UK sits alongside the US as the world's most open marketplace - with the most potential. "That's where the competition is most serious and corporations believe in using information technology for gaining competitive advantage."

Murthy has no shortage of European acquisition targets. Investment bankers swarm around the Indian software giant, with proposals. Infosys has set European growth estimates of 30 per cent in 2001 (it beat those in the first quarter).

"Acquisition is not an easy exercise," says Murthy. "When it involves two people-based organisations, it's about bringing together two cultures, two identities. One has to move very carefully when you acquire one company. Acquiring five or six together is even more daunting."

From the other side
Seven years ago, Simon Denison-Smith and Adrian Pritchard left their lucrative careers (in management consultancy and the City) to set up their software development business. The concept was brand spanking new: to win chunky contracts in Europe and then outsource the development to India. "People thought I was a loony," says Denison-Smith.

Today the two men are at the vanguard of the Anglo-Indian IT phenomenon.

The London and Mumbai-based firm has 200 employees in India and varying numbers in the UK (depending on how many developers are over from India). It specialises in business applications development (say, re-engineering legacy-based systems into web-based systems). Growth rates have slowed in the past year - from 80 to 50 per cent per annum - but Denison-Smith insists that Rave Technologies is picking up work that would formerly have gone to the likes of Accenture and IBM.

The Anglo-Indian business model is the best way to deliver complex development projects, says Denison-Smith. The 5,000-mile journey matters not a jot. "The reality is, it's not that difficult to put someone on a plane," he says. "And the problem with proximity is that it leads you into bad practice. With software development, you can't afford bad practice. The distance forces you into a process."

We may only be at the beginning of this very unusual journey.

You can find the full article in the November 2001 issue of Real Business Magazine: www.realbusiness.co.uk